This article are provided for information purposes only, and are not intended as legal advice.


Buying a business which is not for sale

February 3rd, 2010

Ever saw a business and thought, that would be a great one to buy?  But if the business is not for sale, how do you enquire to see if it is for sale?  Most businesses are for sale for the right price however there is the emotional aspect of selling a business which you started from scratch and many entrepreneurs can’t seem to let go.  They want their kids to run a portion of their empire or their employees or if they have the right people, the business may run itself and they are collecting payments from the business without being involved, effectively they have created an annuity.  If the owner sees this as an annuity, it may be difficult to get him to sell the business.

 

Firstly, you have to be discrete and find out does the owner of the business have many different businesses or is this the only one.  How long have they had the business?  Are the owners active in the business?  You ask, why ask these questions.  If the owner is there all the time and the only employee, this is both a job his only source of income.  If he is making a living but not a great one, if he sells this, what will he do and is there enough money for him to buy another business and earn a living?

 

Sometimes, the owners are builders of businesses.  They buy weak under performing businesses and they turn them around, increase sales dramatically and then the business reaches a plateau, it cannot increase any more.  Now the fun of building the business is not there and they start to look for another under performing business and cash out of the first business and put their efforts into another business.  They may have criteria of size of business, location of business and number of employees.  They may want to downsize and buy a business with only 3 employees and build that business rather than buying a business with 50 employees and trying to build that.  Remember, it is easier to have large returns on a business with $100,000 of sales, increasing sales by 50% is $50,000 but increasing a business with sales of $1 million by the same amount this is only a 5% increase.  It is harder to move a mountain than a small business.

 

Going back to the above example, if the business owner is a builder then you may have an opportunity to buy the business because the owner has been thinking of moving on.  If the business is status quo and the owner likes that, it may be difficult to motivate them to move on and sell the business.  You need to determine what motivates the owners, if they have kids who they want to continue their legacy or is the owner comfortable with status quo. 

 

If you can determine what motivates the owner of the business, you may be able to structure your discussions in a way which will get them motivated to sell the business and to the next project.


Filed under: Buying a business — Gary Landa @ 10:46 am


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